If we stay on the same course, budget-wise, in just 5 years the interest on our national debt will approach what we spend to defend the country. This must be dealt with.
Yesterday, a White House commission put together by President Obama released a draft proposal to do just that.
The leaders of a White House commission laid out a sweeping proposal to cut the federal budget deficit by hundreds of billions a year by targeting sacrosanct areas of U.S. tax and spending policy, such as Social Security benefits, middle-class tax breaks and defense spending.
The preliminary plan in its current form would end or cap a wide range of breaks relied on by the middle class—including the deduction for home-mortgage interest. It would tax capital gains and dividends at the higher rates now levied on wage income. To compensate, one version of the plan would dramatically lower and simplify individual rates, to 9%, 15% and 24%.
For businesses, the controversial plan would significantly lower the corporate tax rate—from a current top rate of 35% to as low as 26%—but also eliminate a number of deductions. It would make permanent the research and development tax credit.
There’s much more; cutting $100 billion from defense, raising gas taxes, raising the Social Security retirement age, cutting federal work force by 10%, and others. It’s quite a sweeping proposal, and it’ll call on the government and the people alike to share the burden.
But what will it wind up doing?
Overall, the plan would hold down the growth of the federal debt by roughly $3.8 trillion by 2020, or about half of the $7.7 trillion by which the debt would have otherwise grown by that year, according to commission staff. The current national debt is about $13.7 trillion.
The budget deficit, or the amount by which federal expenditures exceed revenues each year, was about $1.3 trillion for fiscal year 2010, which ended on Sept. 30.
Even with all this, it’ll only cut the growth by half, with debt still rising by trillions every year.
This is where we find ourselves; overextended and really unable to do anything about it despite some Herculean efforts. Our government has made so many promises that it can’t renege on, that the most we can hope for is “only” growing slower. Well, ya’ gotta’ start somewhere, and this is just a draft proposal. But this is a good start.
Or is it? How do other politicians see it? (Warning: Easily anticipated reactions follow.)
Lawmaker reaction was mixed, suggesting any final plan will be weaker than the one released Wednesday. Sen. Judd Gregg (R., N.H.), the top Republican on the Budget Committee and a panel member, called it “a genuine product that deserves very serious attention.”
But liberal panel members were less enthusiastic. Sen. Richard Durbin (D., Ill.) said he wouldn’t vote for it, saying that “there are things in there that I hate like the devil hates holy water.”
And from another article.
House Speaker Nancy Pelosi, California Democrat, called the proposal “simply unacceptable.”
Republicans cautiously optimistic, Democrats hate it. Gee, who would have predicted that?
Some important interest groups were sharply critical, particularly over curbs on entitlement spending. The plans authors “just told working Americans to ‘Drop Dead,”‘ said AFL-CIO president Richard Trumka. “Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare.”
Unions hate it. Gee, who would have predicted that?
From the second article:
Liberal think tanks pushed the White House to move the deficit commission in a different direction or to condemn it.
“It’s time for the Obama administration to become more engaged in the bipartisan commission it established, or to make it clear that the commission does not represent their viewpoint on these issues,” said John Irons, research and policy director at the Economic Policy Institute, a labor-backed group.
Liberal think tanks hate it. Gee, who would have predicted that?
(Back to the first article:)
The conservative Americans for Tax Reform also blasted the plan. “It confirms what everyone has known—this commission is merely an excuse to raise net taxes on the American people,” the group said in a written statement. Supporting the plan would violate the group’s no-new-taxes pledge, which many Republicans and some Democrats in Congress have signed, it warned.
Single-issue groups hate it. Gee, who would have predicted that? I do understand, however, this particular group’s problem with the proposal. Seems that in the past, every time there was some belt tightening that needed to be done, the government decided it was the taxpayer, not Washington, that needed to do it. So Americans for Tax Reform has a point, but it needs to look at the bigger picture, I think. Besides, it may be that the Feds take the larger hit this time, by quite a bit.
Sen. Gregg said that overall, federal spending takes a bigger hit in the plan than taxpayers do. The plan’s goal is to reduce federal spending and federal revenues to 21% of gross domestic product. Federal revenues currently are projected to be about 19% of GDP in 2015, and outlays about 23%.
It would seek to achieve the pullbacks through a mix of spending cuts and increasing tax revenues—about 75% in spending reductions and about 25% from the tax side.
This will be a test of the Republican freshmen, especially the Tea Partiers, that will be coming to Washington in January. Those who voted for them will be watching to see if we can, indeed, make a difference based on who we send to Congress.
My prediction: No deficit-reduction proposal will go unscathed. I imagine the commission asked for far more than they knew they could reasonably expect to pass Congress, anticipating that it would be scaled back. That it will, but I predict the Republicans will push hard for its adoption. Democrats will have to be bought, er, brought onboard but I think the lion’s share could get passed. The wildcard is the President. If Obama wants a second term, I think he’ll have to sign this. If he doesn’t, no one, except truly blind partisans, will ever again believe his talk about wanting fiscal responsibility, and they’ll remember in 2012.
Doug Payton blogs at Considerettes.